Euro's Mixed Fortunes: Inflation Drops, Economy Shrinks, but EUR/AUD Sees a Silver Lining

Traders' Opinions

Forex

Summary:

In a rollercoaster ride for the Euro, fresh economic data from the Eurozone revealed a drop in inflation, an unexpected economic contraction in Q3, and the European Central Bank's (ECB) unwavering stance on interest rates. However, amidst these fluctuations, EURAUD appears to be signaling a bullish trend continuation, supported by price action on various timeframes.

BUY EURAUD

Close Time

CLOSED

1.66800

Entry Price

1.69000

1.66000

1.66113 +0.01308 +0.79%

80.0

Pips

Loss

1.66000

1.65998

Exit Price

1.66800

Entry Price

1.69000

Euro Faces Mixed Economic Signals

The Euro (EUR) has been on a wild ride recently, extending its gains against the US Dollar (USD) to $1.065. This surge comes as financial markets digest fresh economic data emanating from the Eurozone. The key takeaway from this data is a drop in inflation, an unexpected economic contraction, and the ECB's unwavering commitment to maintaining restrictive borrowing costs.

Inflation Falls, Economy Contracts

Inflation in the Euro Area took a tumble, falling to 2.9% in October. While a drop was expected, the magnitude of the decline exceeded forecasts. However, the economic bombshell came from the unexpected contraction of 0.1% in the third quarter, a far cry from the flat reading that was anticipated. This contraction paints a bleak picture for the Eurozone and raises questions about the ECB's ongoing tightening campaign, which has driven borrowing costs to record highs, potentially weighing on the economy.

ECB's Firm Stance

Last week, the ECB made headlines by keeping interest rates unchanged for the first time in over a year, aligning with market expectations. However, the central bank reiterated its stance of maintaining borrowing costs at a restrictive level for the foreseeable future. This commitment reflects the ECB's resolve to combat inflation, even at the cost of economic growth.

Amidst this tumultuous environment for the Euro, a glimmer of hope appears on the horizon in the form of EURAUD. Market participants are closely watching this currency pair, as price action suggests a bullish trend continuation. The optimism is grounded in the analysis of multiple timeframes.

Technical analysis

Euro's Mixed Fortunes: Inflation Drops, Economy Shrinks, but EUR/AUD Sees a Silver Lining_1

- On both weekly and daily timeframes, market sentiment is undeniably bullish, indicating a prevailing positive bias.

- A reversal pattern has emerged on the 4-hour timeframe, raising expectations of an upcoming uptrend.

- To solidify this upward trend, three critical steps are needed:

Breaking the bullish trendline.Achieving a full break over the defined level.Reversing to approximately 1.6900

For the time being, the EURAUD pair is experiencing a retracement towards the 0.5 Fibonacci level, coupled with support and a bullish trendline. This confluence of technical factors presents a potential escape opportunity for traders. On the hourly chart (H1), there are indications that the price is gearing up for a correction, and the situation calls for patience. The price is currently correcting towards the support and trendline, presenting a pivotal decision point for traders.

An additional consideration is the retail sentiment, with 47% of traders favoring sales, indicating an increasing number of buyers. This shift in retail sentiment may not bode well for the Euro, as it can sometimes act as a contrarian indicator.

TRADE RECOMMENDATION

BUY EURAUD

ENTRY PRICE : 1.6680

STOP LOSS : 1.6600

TAKE PROFIT : 1.6900

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Eva Chen

Forex

Central Bank

Summary:

Although the policy measures taken by the Bank of Japan (BOJ) today are significant, they are not enough. The three highlights of today's BOJ meeting were: the end of daily fixed-rate bond-buying operations, a sign that they are becoming futile in the face of surging global yields; the "use as a reference" of the 1.0% cap on 10-year Treasury Securities yields, which implies that the YCC no longer exists, and is a necessary precursor to ending negative interest rates; and an increase in inflation expectations for FY2024 from 1.9% to 2.8%, without which any expectation of an end to the YCC cannot become a reality. The increase in inflation expectations for FY2024 from 1.9% to 2.8%, without which any expectation of an end to the YCC would not be realized.

BUY USDJPY

Close Time

CLOSED

149.800

Entry Price

152.250

147.300

142.229 -1.208 -0.84%

101.8

Pips

Profit

147.300

150.818

Exit Price

149.800

Entry Price

152.250

Fundamentals

At today's meeting, the BOJ kept interest rates unchanged as expected. Under the control framework of the yield curve, the BOJ keeps the short-term policy interest rate at -0.10% and the yield target of 10-year Japanese government bonds at around 0%.

These decisions were reached by consensus. However, the BOJ cleverly changed the wording of the upper limit of the yield of 10-year Japanese government bonds, and now calls the level of 1.0% "a reference for market operation". This move is seen as turning the upper limit into a flexible upper limit, rather than a strict limit.

In addition, the BOJ stated that "given the extremely high uncertainty of the economy and market, it is appropriate to increase the flexibility of yield curve control". This view has not been generally recognized, and Toyoaki Nakamura expressed opposition. He believed that increasing flexibility should be based on confirming the improvement of corporate profitability.

The BOJ also made a major update to the new economic forecast, showing an overall upward adjustment of the core inflation forecast, which significantly jumped from 1.9% to 2.8% in FY 2024.

Market observation: after the BOJ announced the policy, the JPY faced new downward pressure, because the expectation of major changes was basically not met. On the contrary, the BOJ slightly adjusted the wording of the yield ceiling, resulting in a dull market reaction.

The BOJ's policy decision today gives the impression that it is wary of the soaring yield of government bonds, which is why it is so cautious. However, the change in the inflation forecast is not enough to support his view of withdrawing from the YCC policy. The CPI excluding food (that is, the target of the BOJ) is still expected to be 1.7% in FY 2025, and will not exceed 2.0% steadily.

In addition, data released by the Japanese Ministry of Finance on Tuesday showed that Japan did not intervene in foreign exchange in October. Japan has never intervened in the foreign exchange market since last October. On October 3, the USDJPY broke through 150.00, and then sharply retreated, which triggered speculation on possible foreign exchange intervention. There were several similar rapid fluctuations in October, but the magnitude was small.

Overall, the BOJ's speech today has not reset the market's view of the JPY. The risk now is that the USDJPY will rise to 152.00 and prompt the authorities to take active foreign exchange intervention measures. At the same time, traders believe that the financial situation in the U.S. has not been substantially tightened, which is why the USD will continue to be supported.

Buy the Dips and Do Not Buy in the Uptrend_1

Technical Analysis

The USDJPY rebounded strongly on Tuesday, with bulls back above the threshold of 150.00, fully recovering the losses of the past two days.

This suggests that the corrective decline was short-lived and left a bear trap below the 149.03 level, suggesting that the larger bulls were not undermined by yesterday's sharp decline as the threat of possible intervention faded.

Technicals in the 1D timeframe remain bullish, with repeated daily closes above the threshold of 150.00 set to confirm a new signal, as well as today's big bullish daily close (which is on track for the biggest daily gain since July 28).

However, in concrete terms, the 20-day SMA at 149.55 is the reasonable buying pivot; at the same time, it will guard against the bear trap in the 149.00 range. It is recommended to buy the dips.

Trading Recommendations

Trading direction: Long

Entry price: 149.70

Target price: 152.25

Stop loss: 147.30

Deadline: 2023-11-13 23:55:00

Support: 150.40, 150.00, 149.44, 149.03

Resistance: 150.77, 151.23, 151.56, 151.94

Risk Warnings and Disclaimers

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Peterson

Commodity

Summary:

The oscillation range during the day will be 81.5-85.5, and investors are advised to go long at low.

BUY WTI

Close Time

CLOSED

81.500

Entry Price

84.500

81.000

67.620 -1.271 -1.84%

50.0

Pips

Loss

81.000

80.999

Exit Price

81.500

Entry Price

84.500